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Belgium: Constitutional Court Considers Differences in Minimum Paid-Up Capital of Private Limited Liability Companies Objective, and Related Sanctions Proportionate
Introduction In a decision dated 16 December 2010, the Constitutional Court
(Grondwettelijk Hof/Cour Constitutionnelle) ruled on a
preliminary question on the raised minimum paid-up capital
(volgestort/libéré) of a single member
private limited liability company (éénhoofdige
besloten vennootschap met beperkte
aansprakelijkheid/société privée à
responsabilité limitée unipersonelle).
Facts
A single member private limited liability company was
incorporated in 2001 with a minimum share capital and minimum
paid-up capital. In 2004, the statutory minimum paid-up capital for
single member private limited liability companies was raised from
EUR 6,200 to EUR 12,400. If this raised amount would not be fully
paid up within one year, the sole shareholder was deemed to be
liable for all obligations of the company without any limitation
(article 213 of the Belgian Companies' Code). In the case at
hand, the company went bankrupt, and the minimum paid-up capital
was never raised to EUR 12,400. As a result, the single shareholder
was held liable without any limitation for all obligations of the
bankrupt company.
Alleged discrimination
The defendant did not argue the facts, but claimed that the
difference in the minimum paid-up capital for a single member on
the one hand (i.e. EUR 12,400) and a common private
limited liability company on the other hand (i.e. EUR
6,200), is unlawful and discriminatory. Moreover, the consequences
of not fully paying up the required minimum capital (i.e.
the unlimited liability), is not reasonably justified.
Position of the Constitutional Court
The Constitutional Court ruled that the difference relating to
the minimum paid-up capital between a single member and a common
private limited liability company is duly justified and based upon
an objective criterion, namely the fact that, within a single
member company, the sole shareholder enjoys all the decision making
powers. Further, the difference is duly justified by the intended
purposes of the law, that is the fight against tax fraud, money
laundry and the prevention of bankruptcy.
The unlimited liability in case the minimum paid-up capital of
the single member company would not be fully paid up, is not
disproportionate according to the Court, taking into account the
fact that this sanction must assure that the capital is indeed be
fully paid up.
Analysis
Whereas the difference between the various amounts of minimum
paid-up capital may have had, once, an objective basis (even though
the reasoning of the Court does not convince at all, and, more
importantly, does not seem to take into account the fact that the
recently introduced starter's private limited liability company
only requires an initial share capital of EUR 1, regardless of the
number of shareholders), the related sanction does not seem
proportionate at all. It does not seem logical or proportionate
that a single shareholder becomes unlimitedly liable for not having
paid up another EUR 6,200, whereas multiple shareholders remain
only limitedly liable up to the amount of their subscribed share
capital, even though they did not pay up the minimum required
paid-up capital.
In general terms, the entire set of minimum and paid-up capital
mechanisms does not seem consequent and logical anymore. It may
make more sense to review the entire set of company forms that are
available under Belgian law, and limit them to, broadly, (i)
unlimited liability companies, (ii) private limited liability
companies with various modalities, large flexibility and low
capital requirements for smaller businesses, and (iii) more
regulated and capitalised limited liability companies for larger
businesses.
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